Opening Statement from the May 2018 CCPM Forecaster
Originally published on May 6, 2018
Overview
For several months we have been discussing the broad based strength in the global economy. One might assume this would necessarily translate into higher pricing for commodities. On the contrary, pricing for most commodities has remained relatively subdued. In contrast, stock markets have soared as a result of higher earnings growth estimates.
Given our forecast for a relative improvement in global macroeconomic activity, we have previously warned traders that commodities pricing is not likely to really “take off” for the foreseeable future for a variety of reasons.
Although commodities pricing mounted a nice rally after reaching a cyclical bottom in 2016, much of the gains since then have been restricted to crude oil and base metals.
As you will recall, oil pricing collapsed in late 2014 after Saudi Arabia announced plans to continue to push output during a period when demand was weakening. Within a few months thereafter, the entire oil industry was facing financial difficulties as lower pricing pressured margins and hit the most leveraged firms the hardest. The financial damage was especially notable in the Master Limited Partnerships (MLP) segment from the USA and exploration firms focused in the Canadian oil sands region.
Given the mild but steady progress made in inflation over the past several months, commodities might have traded higher if it were not for recent issues that have weighed on global investment and trade. Specifically, both businesses and investors remain concerned about the ramifications of changes to US trade policy on global growth. Notably, emerging markets appear to be showing signs of weakness as a result of these concerns and fund flows confirm this trend. Concerns over the future of global trade agreements have adversely impacted the stock market to a much greater degree.
Finally, under normal circumstances...
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